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Compute the predicted break-even point in dollar sales

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Question - Blue Company sold 30,000 units of its only product and incurred a $85,000 loss (ignoring taxes) for the current year as shown here. During a planning session for year 2020's activities, the production manager notes that variable costs can be reduced 25% by installing a machine that automates several operations. To obtain these savings, the company must increase its annual fixed costs by $175,000. The maximum output capacity of the company is 55,000 units per year.

Blue Company Contribution Margin Income Statement For Year Ending December 31, 2019

Sales $900,000

Variable $680,000

Contribution Margin $220,000

Fixed Cost $305,000

Net Loss $(85,000)

Required -

1. Compute the break-even point in dollar sales for year 2019.

2. Compute the predicted break-even point in dollar sales for year 2020 assuming the machine is installed and there is no change in the unit selling price.

Reference no: EM132534519

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